Opinion: How Aerospace Can Sidestep Russia’s Titanium Cutoff
Investors have become more and more concerned about the availability of Russian-supplied titanium since the country's forces invaded Ukraine on Feb. 24 and as Boeing and Airbus ramp up production rates.
Over the past month or so, an array of observers have suggested that Russian President Vladimir Putin could shut down the commercial aerospace business. Such statements are based largely on the fact that VSMPO-Avisma—part of Russian state-owned enterprise Rostec—is the largest titanium supplier to the commercial aerospace end market. We have seen estimates that VSMPO supplies 25-45% of titanium used in the commercial aerospace end market and that Boeing, Airbus and Embraer source 35%, 65% and 100%, respectively, of their titanium from VSMPO.
While concerns about the availability of titanium to support planned commercial airliner production rate hikes are not unfounded, they may be exaggerated, given our channel checks. We do not dispute that VSMPO plays a critical role in the commercial aerospace ecosystem, but its criticality may have waned in recent years as Boeing and Airbus built up buffer inventory of titanium following Russia’s invasion of Ukraine’s Crimea region in 2014. Many Tier 1 and Tier 2 suppliers have found alternate sources of titanium, particularly from Japan and China.
With production rates well below pre-pandemic levels, particularly for titanium-dependent widebodies such as the Boeing 787, demand is not as high as it was. Before the COVID-19 crisis, 787 production peaked at 14 aircraft a month, and Airbus A350 production peaked at 10 a month. Given the lag in international travel recovery, a return to such widebody production rates is not anticipated for several years, if at all. In fact, one of our industry contacts says Boeing and Airbus potentially have “a few years’” worth of titanium on hand. Six days before Russia invaded Ukraine, the chief commercial and market officer of Allegheny Technologies Inc. (ATI) noted a surplus of titanium in commercial aerospace and suggested that it could take a couple of years before a titanium supply/demand imbalance would emerge for airframes or engines.
For commercial aeroengines, titanium does not appear to be in short supply either. Industry contacts we have spoken to tell us that VSMPO does not and never had significant content on jet engines. GE recently stated that it sources about 1% of its titanium from Russia—and that is used in only two parts. Additionally, GE has more than a year’s supply of titanium in stock. Raytheon Technologies has stated that it is working to ensure its supply chain is secure for the coming 12 months and noted that Pratt & Whitney has two or more sources for titanium and other key materials.
While some may rightfully argue that a year’s supply is a temporary stopgap, we expect that suppliers will spend this time requalifying the most vulnerable materials and parts from sources in the U.S. or allied countries such as Japan. For example, Howmet already sources about 95% of its titanium sponge from Japanese companies under long-term agreements. Toho Titanium has excess capacity and has said it can offer more titanium sponge to the commercial aerospace industry. Precision Castparts, ATI and Howmet can also produce titanium from scrap. In short, Boeing, Airbus, engine OEMs and commercial aerospace suppliers should be able to find a sufficient number of alternative titanium suppliers to meet future production needs.
What about the forgings and finished parts that VSMPO produces? Suppliers should be able to requalify many parts currently produced in Russia in less than a year. The greatest risk is for parts that have never been made elsewhere, in which case qualification could take longer. That said, qualification is done by the OEM and not the aviation regulator. If an OEM has an urgent need, it can supply its own engineers and technicians to accelerate the qualification process and help the new supplier get the proper tooling in place. This could be the case on the 787 and 777X landing gear, which currently use forgings provided by Boeing’s joint venture with VSMPO. Even here there is some buffer, with 110 787s in inventory—more than a year’s supply—and another 18 months before the 777X is likely to be certified and start being delivered.
VSMPO has a 75,000-ton hydraulic forging press, second only to an 80,000-ton forging press in China. Howmet and Precision Castparts each have 50,000-ton presses, Weber Metals has a 60,000-ton press and Aubert & Duval—which is being acquired by Airbus, Safran and Ace Capital Consortium—has a 65,000-ton press. They could serve as viable substitutes for forgings that are now produced in Russia.
Rob Spingarn is managing director at Melius Research. Scott Mikus is an associate. This piece is adapted from a research note they wrote for the firm’s clients.